The Long Historical Lure of Banking in Britain; London Has Been a Key International Money Center for 300 Years, but Much of the Lending Is Now in Dollars
Mendelsohn, M. S., American Banker
The Long Historical Lure Of Banking in Britain
London has been a key international money center for 300 years, but much of the lending now in dollars.
WHEN THIS NEWSPAPER first appeared 150 years ago, London was by far the world's biggest financial center. It still is, but in a different way.
In the 19th and early 20th centuries, London was dominated by British banks, which lent sterling to the world, America included. Today, it houses the world's biggest concentration of international banks from more than 70 countries. Those banks still lend worldwide, but more than 90% of their lending is in currencies other than sterling, and mostly in dollars.
The foundations of London's emergence as a world financial center were laid during England's industrial revolution in the 17th century, but London did not overtake Amsterdam until Britain emerged victorious from the Napoleonic wars at the battle of Waterloo in 1815.
Before that, during the American War of Independence, the fledgling American government had raised $15 million in the money of that time on the markets of Amsterdam and Paris. It did so partly because those countries were sympathetic to the American cause, but also because they were the biggest international markets of that time, especially Amsterdam, where the 13 colonies floated most of the bonds they needed to finance their struggle. Even so, they had to pay dearly, at 4% to 6% when domestic yields in England and Europe were running at about half those levels.
Amsterdam preceded London as a world center by one of those historical oddities that are more clearly visible in retrospect than they were at the time. Dutch fortunes were built during the Middle Ages from the herring shoals gathered off the shores of Holland and shipped down the Rhine for the Friday diet of Catholic Europe. The rich proceeds of that humble trade enabled the Dutch to win their independence from Spain in the 17th century.
Thereafter the Dutch built an empire in what is now Indonesia, but with outposts at the Cape of Good Hope and New Amsterdam, where Wall Street remains as one memento of their presence. By the 18th century, Dutch colonization and international trade had established Amsterdam as the undisputed financial capital of Europe, which then meant the world. So it remained until overtaken by London from the early 1800s.
In Britain's case, the economy was transformed by the industrial revolution as well as trade. The changes started as early as the 17th century when British adventurers began to open up the Americas and India, but it gathered real momentum only from about 1700. In the subsequent century, British national income is estimated to have increased almost five times and the volume of trade almost three times.
Butchers, Bakers, Bankers
Then, in the first half of the 19th century, British national income doubled again and the number of banks in England rose from about 300 in the year 1800 to about 900 in the mid-1830s and peaked at about 1,100 in 1850. But most of them were small, local ventures, which were operated, according to one history, by "butchers, bakers, and candlestick makers.'
Not surprisingly, there were numerous defaults. British law was then changed from 1844, first, to break the Bank of England's near-monopoly on large-scale banking and next, to permit the creation of joint-stock banks as limited liability enterprises operating nationwide.
That led to a consolidation of banking in England, centered in London, which contrasted with the proliferation of new banks that accompanied the opening of the American land mass during the 19th century.
Throughout the 19th and early 20th centuries, British banks in London mobilized sterling finance to help fund development in the new worlds of America, Canada, South America, Australasia, and South Africa. Investments went largely into infrastructure like railroads, harbors, steamships, and inner city transportation like tramways. …